• 1Q19 DPU +3.6% YoY
• Funan 90% pre-leased
• Higher FV of S$2.32

1Q19 Results Met Expectations

CapitaLand Mall Trust’s (CMT) 1Q19 results met our expectations. Gross revenue rose 10.0% YoY to S$192.7m, while NPI jumped 11.5% to S$140.1m. The latter formed 25.1% of our FY19 forecast. Growth was driven by the acquisition of the balance 70% interest in Westgate on 1 Nov 2018, coupled with stronger organic growth from most of its malls.

DPU increased 3.6% YoY to 2.88 S cents, and this excludes S$9.2m of taxable income available for distribution to unitholders (~0.249 S cents per unit) which was retained. This portion retained will be distributed out in subsequent quarters. 1Q19 DPU accounted for 24.2% of our FY19 forecast.

Funan on Track to Open in Mid-2019

Operationally, CMT achieved positive rental reversions of 1.2%, with only Raffles City Singapore recording negative rental reversions (- 3.1%). Strong rental uplifts were seen at IMM Building (+4.2%) and Clarke Quay (+3.0%). Portfolio occupancy came down slightly by 0.4 ppt QoQ to 98.8% due largely to IMM Building, Bugis Junction and Clarke Quay.

Shopper traffic rose 2.0% YoY in 1Q19, but tenants’ sales psf per month declined marginally by 0.4% YoY on a comparable malls basis. On a positive note, Funan has already achieved high precommitment levels of 90%, and is on track to open in the middle of 2019. It will thus contribute to CMT’s earnings progressively from 2H19. Funan aims to offer first-to-market technologies and retail concepts to deliver an experiential environment to its shoppers and tenants.

Potential Opportunities Beyond Near-term Competitive Pressures

Looking ahead, CMT remains cautious on the near-term outlook given the higher supply, which is largely contributed by Jewel Changi Airport and Paya Lebar Quarter retail mall. While this may have an impact on the performance of its malls in the East, we expect CMT’s portfolio to remain resilient.

There will no doubt be increased competition, but given that Jewel Changi Airport has also attracted new-to-market brands to Singapore, we see this as future opportunities for retail landlords such as CMT if these brands were to expand their presence to other parts of Singapore. After lowering our risk free rate assumption from 2.7% to 2.3%, we bump up our fair value estimate from S$2.25 to S$2.32.

Source: OCBC Research - 25 Apr 2019